The Dow Jones transportation average is on fire this year, up 17 percent. The index of 20 airline, railroad and shipping company stocks is outperforming the Dow Jones industrial average, which continues its march through record territory. That index of 30 blue chip stocks is up 11 percent and closed at an all-time high of 14,560 Tuesday.
Although the transportation average rose with the market Tuesday, the average has closed lower for six of the last eight trading days. Investors first took a breather on March 15, as the market paused from its big run-up this year and concern about rising consumer prices added to a selloff. The transportation average also slid last week when FedEx reported a 31 percent drop in quarterly earnings and cut its forecast for full-year earnings.
A change in the direction of the transportation average is worth watching because it is a key aspect of Dow Theory. The idea is that a rally in the industrial stocks won’t last without a corresponding rally in the transportation sector. That’s because products cannot be shipped unless they are first ordered. Strong demand for shipping services is a signal that there’s solid demand from customers, which can sustain a rally in the industrial stocks.Associated Press